The WTO: Negotiate or Litigate?


Limited progress in the Doha Round negotiations of the WTO has caused some people to suggest that the era of negotiations to reduce market access restrictions and other trade distorting domestic policies has passed and the way to move toward a more open world trading system is by using the WTO dispute resolution process to enforce the existing rules. Such a shift in strategy would undermine the original goals of the GATT and the WTO, reduce incentives for countries to make meaningful market access changes, increase the uncertainty in WTO trade policy rules and strengthen the hand of those who seek a mercantilist, managed trade system.

When efforts to unwind the protectionist trade policies of the 1920s and 1930s began under the GATT (General Agreement on Tariffs and Trade, the predecessor of the WTO) in 1947 the focus was on lowering trade barriers through negotiations. A country proposed gaining market access to other countries in one market by providing some reciprocal market access in another market. Through this process the accumulated benefits in market access in other countries more than offset any short-term losses from allowing access to domestic markets. The benefits promoted economic growth in the participating countries and provided the political cover needed to offset economic losses in some industries.

A dispute resolution system was a natural outgrowth of the agreements reached under GATT. The resolution process did not become important until the 1980s and helped to fuel efforts to provide for a more formalized system of dispute resolution under the Uruguay Round Agreement that was completed in 1994. The dispute resolution system is a means to create leverage for positive changes in domestic policies; it is not an end in itself. Dispute cases are estimated to involve only ½ to 1 percent of total world trade. This is partly due to many countries actively trying to avoid filing cases and trade being a win-win situation for buyers and sellers.

The incentives for countries to work on new trade opening agreements are the net benefits of a new agreement. Multilateral agreements under the WTO are currently the best way to achieve those net benefits on a worldwide scale. If political trade-offs were not necessary for trade opening measures, it would be in the best interest of countries to pursue unilateral free trade and gain the benefits of greater economic growth through more efficient use of resources. That direct approach to improvement in the standard of living is blocked by the political strength of existing industries that would suffer losses under a more open trading system. Slow, complex, frustrating negotiations under the WTO are the only way currently available to assemble a set of benefits that are politically viable and result in stronger economic growth.

The art of trade negotiations has traditionally required the ability to accept a certain amount of ambiguity to smooth over what appear to be irreconcilable differences. That often allows all sides in the negotiations to claim at least partial victory. Most of the ambiguities become non-issues over time, while a few cause difficulties and result in additional negotiations. Even the most unambiguous agreements cannot anticipate all future market developments that may impact an industry. Before the development of a more formal dispute resolution process, many problems under existing agreements became the subject of further negotiations to develop a working consensus that allowed trade to develop.

Since the development of a more formal dispute resolution process the uncertainty of agreements has actually increased. As U.S. agriculture found out in the cotton ruling, decisions that may be technically within some interpretations of the words of the agreement are not necessarily close to the most common interpretations of the words or close to actual outcomes in the marketplace. This has resulted in efforts to make the words in agreements more explicit so words cannot be reinterpreted in the dispute resolution process. Agreements are now harder to reach because ambiguity is no longer a tool for reaching consensus. Also, some countries appear to be happy to throw disputes into the resolution process to delay change rather than make good faith efforts to work out disputes through negotiations.

The end result is increased fodder for those interest groups that are opposed to the entire process of more open markets. They can point out with some credibility that the process has become so uncertain that a reasonable alternative is to spurn efforts in the WTO and maintain protectionist trade policies that harm the overall standard of living for everyone in the country.

New approaches have been suggested to deal with dispute resolution. One is to have “mini-ministerials” that would attempt to work out differences that inevitably develop. These would lack some of the benefits of trade-offs across industries, but could provide for clarifications or slight adjustments in language or some other trade-offs within an industry like agriculture. Some analysts have proposed that dispute judges should be able to direct certain issues back to negotiators. Another idea is to have the negotiators play a more central role in the dispute resolution discussions so judges would have a better understanding of the context of the words in an agreement. Having judges issue narrow opinions about specific issues rather than broad opinions like in the cotton case has been suggested.

Any trade policy process short of complete free trade will require a dispute resolution system, but not as a substitute for further negotiations. A dispute resolution system should strive toward the same goal of a more open trade system as the negotiations process.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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